Industry news

Outsourced services from dynamic, dedicated private sector providers still set the industry benchmark, argues Leading Services’ Sheila Bryant

On the face of it, cost sharing groups (CSGs) that provide shared services exempt of VAT look a good thing.

Dig beneath the surface a little, however, and the question of whether real value is being offered arises. In order to qualify for VAT exemption, a CSG has to be non-profit making by providing services at cost to the organisations within the group – all of which jointly own the CSG.

The types of organisation most likely to be attracted to the idea of CSGs are charities, non-government organisations (NGOs) and public sector bodies. It follows then, that members are unlikely to benefit from the level of commercialism and competition that exists across the private sector. If the CSG is owned on an equal basis by all its members, there would be no clear leader in the group and probably, no real incentive to drive change and seek ongoing service improvements.

And, as we’ve seen before, the merging of back office services in the public sector is invariably bedevilled by bureaucracy and characterised by a wholly different culture to that in commercial organisations. It is very difficult to change this and create the environment in which the imperative to drive quality up exists hand-in-hand with the need to keep costs down.

The private sector, on the other hand, has a great deal of experience in demanding market conditions where efficiencies have been achieved through outsourcing, co-sourcing, process change and policy enhancement. Nowhere are these skills more finely honed than at specialist private sector consultancies. That’s why I believe that, by introducing a private sector driver, a client will enjoy more efficiencies than are currently available within the public or third sectors.

However, if the private sector created its own consortium along the lines of the VAT exempt CSGs, Its clients would not benefit from the VAT exemption applicable to CSGs. This means that members would be paying 20% over cost, yet would have no mechanism for claiming that money back.

This in turn restricts opportunity for those private sector oursourcing providers who owe their very existence to their skills, knowledge, experience and expertise in services that make a huge contribution to the success of many businesses and charities. Quite simply those who are arguably best placed to drive most value for money are disadvantaged to the tune of 20% when compared to CSGs.

Dynamic outsourcing consultancies such as Leading Services can facilitate the setting up of amalgams by bringing together customers that would be eligible to benefit from the VAT exemption. However, under the current proposals, they would be actively discouraged from doing this. In this scenario, their best bet would be to join a CSG, where they become subordinate to the consortium members and lose their ability to drive and shape a successful and efficient operation.

For this reason many organisations without the resources of large commercial businesses – such as those in the third sector – find themselves with a dilemma: go down the CSG route or outsource to private organisations?

To win these clients over and show that their needs are fully understood, private sector providers need to demonstrate their commitment to a wide range of ethical and practical principles. High among these are sustainability and transparency: third sector clients demand that providers share their environmental values and that they are open and operate with the utmost integrity. Similarly, the provider should show clarity in everything it does and work within clear management consultancy codes and guidelines. Governance structures should be sufficiently robust to assure the client of its adherence to corporate responsibilities. Clients are also increasingly looking for assurance that outsource providers understand - and can adapt to - their unique organisational culture and that they have the client portfolio and range of services that engender complete confidence.

Sheila Bryant is an experienced Chartered Accountant and CEO of Leading Services where she provides strategic professional and outsourced finance director services to the company’s clients.

www.leadingservices.co.uk

We want it good, and the government wants it on the cheap. There is much speculation about the economics of scale, and the expected cost savings, that shared services can bring. On the other side of the debate, there is voluminous criticism, and the oft-begged question: where is the evidence that shared services will save money? This feature will look at the current examples of best practice in shared services and the evidence of cost savings.

The employment of shared services has been most prevalent within the public sector, with Whitehall leading the way in pushing streamlined processes and efficiency as it seeks to create savings in the current economic climate. The Local Government Association has provided research demonstrating that councils are saving more than £156 million a year through shared services, with 219 English authorities sharing IT, recycling and waste, procurement and other corporate services. The use of shared services in councils according to Jonathan Hamill, Sales & Marketing Director at APD Communications, “can result in real savings and will increasingly be key to ensuring budget cuts do not affect the essential services provided to the public.”

The private sector has looked at the viability of shared services, but the large scale models introduced by the government have yet to be adopted fully. Currently the public sector leads by example on the implementation of shared services while the private sector waits to determine the results of large scale implementation. Public sector procurement has often been limited by failing to establish advice on best practice for the employment of shared services. The practice of departments requesting bespoke software coupled with a failure to provide effective mandation has led to a history of projects beset by over competition and lack of trust.

• Defining services.

The short term success of shared services requires that the public sector compiles guidelines on the implementation of services throughout departments. Records need to be compiled detailing all of the variables of the project prior to commencing on a project of mutual cooperation.

From the outset the services to be shared must be clearly defined with the end objectives detailed. Focus should be placed on the requirements and expectations of the parties involved and support services established. Service areas which lend themselves to being shared between parties tend to relate to basic roles including, invoice purchasing, accountancy and IT servicers.

• Structure.

In order to reap the benefits of combining resources, an appropriate structure including governance arrangements must be drawn up in the initial stages of the brief. Effort should be made to avoid the procurement of shadow personal. Many examples exist of collaboration being weighed down by the practice of hiring of multiple consultants. In detailing the services to be shared the goal should be to streamline services while increasing efficiency with resources.

The move to a shared services environment must incorporate a clear understanding of a collaborative IT strategy. The appropriate technology should be identified for delivering shared services as well as identifying the potential obstacles of consolidating software applications. It is vital that up to date technology is employed in order to facilitate the consolidation of information and increase efficiency.

The effective use of Cloud based services can provide multiple benefits in integrating systems. The rise of cloud based technology provides the potential for organisations to work quickly together to set up and launch shared services operations in an efficient and economic manner. This ensures that only the services required are employed while diverting additional resources towards the core service delivery. A shared services partnership focusing on support services between Stockton-on-Tees and Darlington Borough Councils was implemented in just two weeks through the use of Cloud software delivered by supplier UNIT4.

• Monitoring

The implantation of shared services requires on-going monitoring to ensure that evidence exists of clear benefits being achieved. The gathering of baseline service data should be gathered in the initial proposal as well as being actively undertaken throughout the shared services lifecycle to facilitate fine tweaking and ensure the flexibility of the model.

• Relationship management

Relationships are fundamental to the success of shared services. Difficulties arise when shared services are taken from a theory to practice in which departments seek the competitive edge at the expense of genuine reciprocal collaboration.

Examples of shared services have been plagued by difficulties caused by a focus on the individual development, rather than mutual benefit between the sharing partners. A focus by those involved in sharing services to take the most out of the party cooperation is counter-productive in producing a stable relationship. Campbell McLundie, partner at Scott-Moncrieff Business Technology and Consultancy, said a “customer centric approach is key to the development and potential expansion of shared services beyond the original portfolio of activities”.

The Cabinet office having identified the weaknesses of past strategies has now started to improve the deployment of shared services, reducing complexity and enforcing mandates. Research from the Hackett Group now shows that companies are to use shared services in greater numbers with an estimated 93 percent beginning to take the step in employing integrated solutions. As the private sector increases adoption, shared services can be adopted with greater scope for flexibility and innovation.

Education in IT has become a recurrent news item in the UK. Plans to reform the curriculum, which Education Secretary Michael Gove described as “dull and demotivating”, are already in place, with a new regime set to start in September 2014. With only 0.5% of all A-Level students taking the course in 2011 it is clear that something needs to be done, but why is it so important that we have an IT industry in the UK?

The benefits of having a succesful IT industry are untold. Perhaps most obvious are the general logistical advantages for UK businesses. For instance, outsourcing onshore will mean that there are no time differences, which can lead to breakdown in communications. The geographical proximity of supplier and user also mean that the potential for face to face contact on a regular basis is far greater. This is an advantage that should not be overlooked, as parties involved then have the capability to hold both informal and formal conversations and is a good way to build raport and gauge if the cultural fit of the organisation is still intact.

Apart from these clear benefits, the economic advantages are huge. IT dominates the outsourcing market, holding 28% of the market share in an industry that is valued at around $20 billion. If UK businesses could become genuine competitors for all IT contracts on a global scale, the financial advantages for the UK would be tremendous.

More IT businesses in the UK would also lead to an increase in standards domestically, as competition would drive up service levels and prices down. It would also encourage innovation as more businesses look to distinguish themselves from the crowd.

It soon becomes evident then that all should be done to ensure that the UK has an IT industry that positions itself as competitors on a global scale.

The Future of the Chief Information Officer

Jim Stikeleather, Chief Innovation Officer, Dell Services, discusses the changing role of the CIO

With the complete fusion of technology into the modern enterprise, technology and business have become inseparable. Together as one, they are needed to address the bigger world, the bigger society, in which a business must operate. And it’s that bigger world that has changed as a result of the hyper‐connectivity of the Internet that, in turn, has given rise to total global competition and social networks where the future is being discussed, debated and transformed.

It’s in this context that the role of the CIO comes into question. From compliance to cloud computing, from budget cuts to social networks and business innovation: it is clear that the CIO is living in turbulent times. What will be on the CIO’s agenda ahead? Will there actually be a CIO in the future?

In the past, information technology was about productivity; now it’s about collaboration, a shared information base and collective intelligence—the wisdom of crowds, social networks and cloud sourcing of unimaginable computing power, all in the hands of everyday people.

It will indeed be informed leadership, not command‐and‐control management of computing and information resources that will shape the future of companies in the current era of global economic crisis and unexpected change. Agility is no longer an option, a nice to have. It’s the entry price. There is much to learn and cultural barriers to overcome, but the company of the future will not be the company of today.

As we shift from IT with a focus on productivity to business technology with a focus on collaboration; and as we shift from systems‐of‐record to systems of boundless collaboration backed by endless computational resources available to all, the future is here now.

Contemplating any company’s transformation to adapt to the changed world, the implications for IT professionals are profound. Companies will need a far greater contribution from IT than ever before, but that contribution will be of a substantially different nature. For the creation of an adaptive enterprise, a system‐wide view of the company is needed.

Building the process‐managed, real‐time, “social enterprise” will demand innovation centred on the discipline of “general systems thinking” from a new generation of IT professionals, where multidisciplinary skills now outweigh yesterday’s technical skills.

Just as today’s popular title of CIO evolved from programmer to EDP manager to IT director, get ready for a new title that reflects the new skill set needed for leadership as companies go beyond IT and embrace business technology.

CEOs and CIOs won’t be the ones who do all the weak‐ties work. Weak ties are connections to people that you may occasionally come across – a friend’s friend or online communities that share special interests outside of your ordinary interests – and they contain much less redundant information which is often more important for gaining fresh information, connecting new dots and thinking outside your own box.

Instead CEOs and CIOs will be the ones who provide the environment, guidance and the tools for knowledge workers throughout the workforce to capitalise on weak-ties. This also means turning decision making upside down, at the bottom of the organisational pyramid, with front‐line staff where actual events take place.

The pillars of an IT investment have been to invest a relatively large sum of money in a long project cycle, and then wait for a payback by gambling on the stability of the situation. At the end of a given IT investment cycle an enterprise should have a permanent competitive advantage. The end result of this approach is that the ongoing costs of IT have increased so much that the headroom in the budget for new investment continues to decrease. When funding is in short supply and stability non‐existent, the traditional pillars for starting new IT projects are not generally acceptable. So CIOs should stop fooling themselves.

In reality, much of the IT estate is, a requirement to stay in business, pretty stable in terms of the rate of change, a genuine overhead, and should be treated as such in terms of ruthless cost management. On the other hand, the value from using new business technology that CIOs are aspiring to, is focused on individual parts of the business in doing what they do uniquely, but doing it far better. That’s not part of an enterprise‐wide cost recovery overhead model of funding. It’s a directly attributable cost to a specific business activity—and that’s where the elasticity of the cloud computing model kicks in.

The pressure for new projects comes from two directions. One is from the cost‐cutting CFO. The other is from specific functions directly related to the need for intelligence, decision support, and building new online products and services to sell. One of the key advantages of cloud computing is not just that we can build and deploy new business applications rapidly and at low cost, it’s that we can implement new revenue‐generating business models by using situational business processes in the cloud.

The challenge for the CIO is to make sure that this happens in a coherent and cohesive manner in the context of the entire enterprise. Taking on such a role with a direct hand in supporting innovative business models is the challenge that CIOs are currently grappling with.

In business life today, employees and those external parties who do business with our enterprises are evaluating and using technology as a key part of their work, and their business units’ successes. In response to such changes it’s time to consider how to adapt the funding model of the last century to one more suitable for the coming decades, especially in light of unpredictable change in the global economy.

With business technology the focus is on people, communications, and collaboration, not computers and data. The CIO role has evolved from custodian of the infrastructure under the CFO to a business leader with a seat at the executive table. The next‐generation CIO is a strategic agent for business transformation. In the most advanced firms the CIO is the most likely executive to move to CEO. The next‐generation CIO is best positioned to manage the creative‐destruction power of technology in the face of today’s unexpected change and to craft corporate strategy.

I’m trying to get hold of the company website designer to upload content, I suddenly realise that for my Sri Lankan based developer its 4am. From communicating with companies in different time zones to organising meetings with far off business partners, distance in many circumstances hinders cooperation. Many of us will are familiar with the frustrations in the workplace caused by issues of proximity. Being close to those we rely on in business will increase communication, efficiency and savings, the same is true in Outsourcing.

One of the most promising economic developments within London and the UK as a whole has developed from multiple small businesses situated within a single area. Technological hubs as exemplified by the success of Silicon Roundabout, have proven the potential of the UK IT industry and the advantages of creating a collection of upcoming start-ups in close proximity to one another.

Canary Wharf is attempting to replicate the successes in Shoreditch. The move is due not to the generous inherent nature of bankers but from the expectation that by attracting multiple up and coming firms to its doorsteps, the financial institutions of E14 will be able to provide funding to SMEs while reaping the benefits of those that hit the big time.

The potential of allowing businesses to grow together in close location has been identified and copied by Canary Wharf as they look to gain similar success. The government has earmarked the IT industry as an area ripe for investment, providing tax incentives and low interest loans to kick-start business growth and economic recovery.

Outsourcing and shared services benefit from the same ideas. Proximity of similar businesses allows mutual benefit in attracting creative minds to within the area, sharing resources, in stimulating ideas by likeminded individuals and facilitating cooperation and communication.

Attractive offshoring destinations, such as India and China present complications. Both countries are far out of UK time zones, collaboration can be is hindered by visa requirements and expensive and long flights can make the prospect of direct contact costly.

Offshoring can be heavily hindered by the lack of a localised relationship. With recent research pointing to an expected downturn in offshoring over the coming years coupled with the strong public opposition and negative press to the practice, ‘local sourcing’ represents a stronger choice.

Outsourcing between businesses in close proximity or ‘local sourcing’, allows for flexibility from project approaches to adapting to rapidly moving developments. Outsourcing projects including such examples as Capita’s emergency contact centre contracts, Hampshire local authorities shared IT services and IBM’s program to develop high performance computing in the UK have all benefited from having a company presence in close proximity to that of their business partners .

Outsourcing by companies in proximity to their new service providers enjoy the benefits of cooperation and communication. Even in a world of globalisation facilitated through communications technology, where software such as Skype makes long distance communication free and simple, the benefit of gaining proximity in outsourcing is apparent in facilitating trust, avoiding cultural miscommunication and in rapidly resolving of obstacles.

While some times long distance relationships work out and can bring mutual success, e.g Calvin Harris and Dizzee Rascal collaborating while in different countries, the best examples come from the likes of the Osmond brothers, where it becomes clear that outsourcing like the Osmonds works best in close proximity.

The Education and Skills Commission has warned against Michael Gove’s proposed changes to changes to ICT curriculum in school. The commission, comprised of some of the UK’s IT leaders, has warned that the proposals leave schools with the freedom to provide no ICT education until 2014.

The current ICT curriculum focuses on teaching students to use software applications, such as spreadsheets and presentations. Under Education Secretary Michael Gove’s proposals, the current teaching programme will be scrapped from September and replaced with a new programme from 2014. The new curriculum will focus on computer science and programming.

The move was praised by IT industry at the time, but there are now concerns that there will be no compulsory ICT education in schools for two years.

John Harris, Chairman of the Commision said: "We are very concerned that the absence of a programme of study or attainment targets for any period of time will severely disadvantage large groups of children as a result of significant differences in standards between the schools that put in place good quality replacements and those that do the bare minimum or, in the absence of guidance, nothing at all. In other words we strongly believe that something is better than nothing and while the school curriculum content needs to change to prepare young people for study in IT related subjects at university, there should be no disapplication ahead of substitution."

Fujitsu has announced the launch of its first data centre in China. Located in the Guangdong High-Tech Service Zone for Financial Institutions, it will become South China's first Tier 3 plus data centre.

The high-performance, fully outfitted data centre will provide Fujitsu customers with comprehensive data centre services, with targeted system planning, system design, system architecture and system application.

Masayuki Tomimuro, Fujitsu’s Regional CEO of China, said, "As the world's third largest IT services provider, Fujitsu has a proud history in the design, construction and operation of intelligent data centres as well as data centre technology innovation. Fujitsu data centres around the world follow a unified certification system and operating standard. Backed up by 15 years of experience in global data centre services, Fujitsu is well positioned to provide world-class, green data centre expertise for clients seeking a flexible selection of services for their critical business data assets."

SAP has announced plans to acquire Syclo, a leading provider of enterprise mobile applications and technologies. The move comes as SAP looks to increase its expertise in building and selling mobile solutions in industries such as utilities, oil & gas, life sciences and manufacturing.

The acquisition follows that of Sybase in 2010, and adds to SAP’s existing mobile enablement portfolio. Syclo has around 750 customers, including Coca Cola and Lockheed Martin.

"With this acquisition, SAP adds momentum to our already powerful mobile portfolio, advancing our vision and leadership while accelerating our mobile apps," said Sanjay Poonen, president, Global Solutions, SAP. " Syclo brings both domain-savvy expertise and industry-leading solutions, as recognized by customers and analysts. This will drive innovation and mobility in the workplace."

Apple stock prices exceeded the $600 billion mark on Wednesday, only a month after reaching $500 billion. The only other company to reach the $600 billion mark was Microsoft in 1999, which is now valued at $260 billion.

The rise in value is particularly significant as stocks continued to fall on the main exchanges due to high US unemployment and the European debt crisis. The stock price peaked at $644 in the morning and stabilised at $629 by midday.

It has been speculated that the surge in value is down to Apple’s recent announcement that it will be using $200 billion pay a dividend and buy back some shares. Apple’s stock price has climbed 59 percent this year and a range of analysts have even said the stock has been under-valued by the market.

Tower Hamlets Council has awarded a seven-year contract to IT firm Agilisys. The move comes as Tower Hamlets aims to achieve savings of £100 million over four years following government budget cuts.

The contract, worth £70 million, hopes to save the council £29 million in ICT cost savings. Agilisys also implement the council’s new finance and HR systems. The IT firm will be based in Tower Hamlets and none of the council’s current IT staff will lose their jobs as they will be transferred to Agilisys for the duration of the contract.

Georgina O'Toole, TechMarketView analyst said: "Previously Agilisys has worked with Unit4 for its Agresso software, for example, at North Somerset. And word on the street is that it's the same situation at Tower Hamlets. Agilisys is quickly becoming one of the most successful players in the sector with revenues from UK local government set to top £100 million in this financial year to 31 March 2012."

Agilisys will start work at the council from May 2012. It beat Capita, HCL, Logica and Northgate in the race for the contract.